I have been warning you guys for a long time now that Scott Sumner was the real guy to watch. Now Christina Romer writes in the NYT–the NYT for crying out loud!–that Ben Bernanke needs to get his Volcker on:

Today, inflation is still low, but unemployment is stuck at a painfully high level. And, as in 1979, the methods the Fed has used so far aren’t solving the problem.

Mr. Bernanke needs to steal a page from the Volcker playbook. To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.

I agree with David S. that the empirical science page taken from physicist’s and chemist’s playbook has failed up to this point, and that Romer was TOTALLY correct in her prediction of what unemployment would have looked like without the stimulus, let alone with the stimulus.

But this time it will be different, because the entire philosophical foundation of “target NGDP”, from the epistemology, to the ontology, to the methodology: it’s all completely brand spanking new. A whole new revolution has taken place. They finally rounded up! Before they just rounded down.

It’s guaranteed to work this time. After all, like Albert Einstein once said, the definition of sanity, not insanity, but sanity, is doing the same thing over and over again, and expecting a different result every time.

Silly Keynesians! They were just targeting the wrong abstract non-causal statistic all along! We should all be glad that they finally have got the right abstract non-causal statistic for the money printers to target. The business cycle will FINALLY be over. It’s true. No more widespread unemployment. The Fed will have finally succeeded after 98 years of tinkering.

Mark this day down, ladies and gentlemen. It’s the beginning of a new era of prosperity. No, this is the first time the Keynesians have promised us this. All the previous times they were just kidding. This time they’re serious. Go to bed now. Nothing to see here. You’re all taken care of now.

N.B. The age of the internet is wonderful isn’t it, because it is allowing us to keep a record of not only what published economists write, but even internet trolls, I mean internet hacks, I mean internet Keynesian positivists, are willing to write about what they believe.

That was probably the best thing I read all weekend, kudos. The worst part is that when “targeting NGDP” doesn’t live up to expectations, all we will hear is that “the monetary stimulus wasn’t big enough.”

The doves will always be right. No matter what happens, if there is widespread unemployment, the doves say the target was too low, and that the economy was worse than they thought. If there is low unemployment, the doves will say targeting NGDP worked, it just worked better than they thought.

There will be “5% is too low!” and “5% is too high!” crowds.

Austrians will keep asking, on deaf ears: “What is so magical about 5%?”

The NGDP crowd will come back and say “it’s because 5% has worked historically, and history proves what will happen in the future.”

So is it me, or did Romer do a Jedi Mind Trick making it look like Volcker endorses NGDP-targeting?

She wants Bernank to “steal a page from Volcker” by making a “new framework,” in this case NGDP.

Can’t I say Bernank should “steal a page from Volcker” by making a “new framework,” in this case destroying all money and returning to a barter economy. This would be a “new framework” just like Volcker, right?

But Greg Ransom is saying that Hayek invented NGDP level path targeting (OK, I exaggerate, but only slightly).

We need you Austrians onside in this. Don’t go Bob!

Is 5% the right number? It’s roughly what the US economy is used to. You could say there’s an implicit rule for 5% NGDP growth. Austrians like the idea of not messing with implicit rules, without good reason.

Is 5% the right number? It’s roughly what the US economy is used to. You could say there’s an implicit rule for 5% NGDP growth. Austrians like the idea of not messing with implicit rules, without good reason.

As long as the crucial degree of freedom of “government can engage in social engineering while maintaining a communistic monopoly over money production” is kept intact, then all the “should it be 5% or should it be 4.486223748528765%?” is all smoke and mirrors.

The whole point is that central economic planner wannabe intellectuals like Sumner and the rest of the NGDP crowd, can pretend that they can ever know what the rate of growth in NGDP ought to be, and feel important in their own minds because they’re advising the “powerful” government and its imposed banking cartel on how much wealth they should confiscate through the Cantillon Effect.

It’s nothing but one set of mad scientists with an anti-social bent trying to become the leading set of mad scientists with an anti-social bent, and each set actually believes that by convincing themselves that they are trying to “do good” that all the immorality and economic destruction they encourage and sanction, is somehow non-existent, and anyone who points it out are just cranky dogmatic do-nothings.

It’s like they believe that if someone doesn’t shout from the hill tops, it means they are telling everyone that their purchasing power is up for grabs by anyone with a printing press.

Is 5% the right number? It’s roughly what the US economy is used to. You could say there’s an implicit rule for 5% NGDP growth. Austrians like the idea of not messing with implicit rules, without good reason.

Nick, it’s not that I have an aversion to 5% NGDP growth. I have an aversion to people saying the reason we have high unemployment right now is that the Fed hasn’t created anything money out of thin air.

Should Austrians support a government plan to execute people if they don’t go spend $1,000 at the mall next week? Think of what that could do to maintain our rule of NGDP growth. We don’t want to upset the economy and what it’s used to; no one likes change.

Bob: the way I figure it, the economy has got a lot of other real shocks it needs to adjust to, and we want a monetary policy that doesn’t add any additional shocks. A monetary policy that creates something reasonably close to monetary neutrality. Targeting a 5% NGDP level path won’t be perfect, but it should give something roughly like monetary equilibrium.

Yes. It’s a well known fact that people would rather starve to death (literally) or eat their pet poodles than accept a lower wage once unemployed. The only way to get them to lay off eating the poodles is to dilute the money supply in order to trick them into taking higher nominal wages that are, unbeknownst to the moron unemployed, the same real lower wage they wouldn’t accept before while they were eating their dogs. Everyone knows this. Bob Murphy just doesn’t get it. He must be in denial due to this Austrian cult thing.

Thanks, David S. for your needed insight. You again demonstrate the deep and thoughtful economic understanding of the anti-Austrians.

Just looking for some enlightenment. Could you please explain the argument for sticky wages? In particular, could you explain why wages would be sticky on a free market? I am just a silly Austrian cultist looking for a way out of the hole I have dug myself into. Will you emancipate/liberate me?

He doesn’t understand that wages are sticky downward in economic downturns in monetary economies, hence the need for monetary expansion.

You don’t understand that the reason wages are sticky in the downward direction is due to government intervention. Unemployment insurance, welfare, food stamps, government created business cycle, etc.

If there was no government intervention, then no human would choose “hold out for higher wages and starve to death.” He would choose lower wages and live, ergo refuting the nonsense that wages are sticky downward. Monetary expansion is what caused the business cycle and widespread unemployment in the first place. It can’t possibly be the cure.